Buying Power of Incomes Is Dropping

Were you one of those lucky few who were able to hold onto your job during the Great Recession, but still feel the pinch when it comes time to pay bills or buy groceries? Well, you are not alone.

It turns out that real wages, wages that account for inflation, have been falling and are almost 7 percent below their 2006 levels. This means your income buys less goods and services today than it did in 2006.

Although inflation, the rising cost of a fixed basket of goods and services, remained relatively low during the Great Recession, it is been rising steadily since 2010, growing an average of about 2 percent a year. Wages, however, have grown an average of 0.9 percent a year during the same time period. Therefore, the price of the stuff we buy is rising faster than the income with which we have to purchase said stuff. In other words, the buying power of incomes is dropping.

The quarterly released PayScale Index has typically called out nominal changes in wages. However, given the rate of inflation in recent quarters, we felt this quarter warranted a national PayScale Index in real terms. We converted the nominal PayScale Index to a Real Wage Index by incorporating the Consumer Price Index (CPI) and then tracking the percentage change in wages since 2006. What we found was interesting -- the increases observed in nominal wages were not enough to outpace the increases in the prices of goods and services.

Of course, this trend isn't true for all people in all roles. If you are working in a hot field or industry (like IT or Oil & Gas), or growing metro (like Seattle), then your real wages might be flat or even positive. However, for the typical full-time, private industry worker, the outlook is bleak.

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1 Comment

Real wages have generally been on the decline for over thirty years. That's why middle class bankruptcies are on the rise, savings are on the decline and many families are one or two major expenses away from financial ruin.